Typically, scrip is a paper certificate that is sold by organizations to raise funds. In practice, a scrip distributor acquires the scrip from participating merchants and sells the scrip to an organization at an organization discount. In turn, the organization sells the certificates at face value to holders for a profit. The holders then exchange the face value of the scrip for goods or services from the participating merchants. The participating merchants redeem the scrip with the distributor at a deeper, merchant discount, and the distributor also makes a profit. Operationally, the distributor must maintain accounts for its scrip sales to each of the different organizations and for its scrip redemptions by each of the participating merchants. Similarly, the organizations and participating merchants must also maintain accounts on their scrip activity.
Since the scrip is traditionally a hard currency substitute, the scrip sales and scrip redemptions must be recorded in a bookkeeping manner and then settled to the accounts of the distributor, the organizations and the participating merchants. The labor required to manage the various accounts, together with the inherent float time associated with completing a transaction, jeopardize the feasibility of these accounts since the profit margins are small. In addition, the certificates are subject to counterfeiting, because the paper certificates do not have all of the security features of regular U.S. currency.
Scrip is traditionally a paper certificate that can be used as money to purchase goods or services. In the past, scrip has been used as paper money issued for temporary emergency use, such as in war times. However, more recently, scrip is used somewhat like a coupon or gift certificate and is sold by organizations for the purpose of raising funds. In a typical fund raising process, a scrip distributor, such as the National Scrip Center (NSC), a non-profit center run by the Diocese of Santa Rosa, Calif., makes bulk purchases of discounted scrip from any number of over 300 participating local and nationwide businesses, such as The Gap. The discount may vary up to about 30 percent, depending on the terms of the deal that the scrip distributor is able to negotiate with a particular business.
After purchasing the scrip at a discount, the scrip distributor sells the discounted scrip to fund-raising organizations at a distribution price equal to the discounted price plus a small handling fee. The fund-raising organizations then sell the scrip to their members at full value. Thus, the fund-raising organizations collect the difference between the full value of the scrip and the distribution price. For example, a scrip distributor negotiates a deal with a local grocery store to purchase local grocery store scrip at a 6 percent discount.
In the foregoing example, the scrip distributor then keeps 2 percent as a handling fee and sells the local grocery store scrip to organizations at a 4 percent discount. The local organizations then sell the scrip to their members for full value, leaving the organizations with a 4 percent profit. So, in this example, if the scrip certificate has a $100 value, the scrip distributor purchases the scrip for $94 and sells it to the organizations for $96. The organizations sell the scrip certificate to their members for the full $100 value, leaving the organization with a $4 profit for each scrip certificate sold.
Scrip is advantageous in fund-raising, because it can be used as a money substitute for goods that a consumer is already going to buy. This is in contrast to other traditional fund raising events that require donations, such as telethons, or that require the consumer to purchase items that they do not really need, such as cookie sales. The scrip distributed by NSC, for example, can be used to purchase practically anything, including groceries, toys, household goods, restaurant meals, and bus, train or airline tickets.
The current scrip system, however, has a number of drawbacks. The current system for distribution of, and accounting for, traditional scrip is time-consuming and arduous, as the paper certificates are transferred from the participating stores to the distributors, the organizations, and finally to the consumers. Typically the distributor pays the participating merchants on a weekly or monthly basis for scrip. Scrip is sent from each merchant to the distributor, who must manually sort and file the various types of scrip. With the receipt of orders from the numerous organizations, the various merchants' scrip is accumulated for each order and then sent back to the ordering organization. Thus, the current system is essentially an antiquated, manual process.
Further, the current system allows for the distributors' resources to be wasted, as there is a sizable pool of scrip in float for a lengthy time period. Since the distributors pay for the scrip up front, the scrip is in float until the time that it is purchased by an organization. Even when a distributor has a check in hand from an organization, it may take days before the check amount is credited to the distributor's account. Thus, the distributors lose cash flow due to their inventory of scrip.
Moreover, because it is a paper money substitute, scrip has all of the disadvantages of paper money. Scrip is subject to counterfeiting, because the paper certificates do not have all of the security features of regular U.S. currency, such as special paper. Also, it may be easily mutilated or destroyed, such as by leaving it in a garment pocket that goes through a washing machine. Additionally, consumers may find it difficult to keep track of their scrip, as it comes in many different shapes and sizes. Some scrip distributors even issue special wallets just to keep track of scrip certificates.
Additionally, a consumer may be able to use scrip only at the specific business that issued the scrip. This is especially true because of the varying discount rates granted by the different businesses. These discount rates may vary from region to region, or even from store to store. Thus, it is inconvenient for consumers to make sure that they have the proper scrip with them, depending on where they are going.